Not overwhelmingly on-topic?
So we have a small minority of financial wizards and their supporting frameworks convincing everyone that they can take an overwhelmingly, inhumanly complex system and quantify the risk of ALL scenarios. Then when this is proven out as hubris, the broader system appears to exhibit cascading failures that impact direct and non-direct participants. The given leaders with vast resources could essentially flip a coin on the post-hoc solution, biased by the proximity of their next election.
So yes, MBS's aren't active agents with goals, but their caretakers with profit-maximizing motives are. Should we have better engineered the macro-system or the mortgage backed securities?
Maybe we need a Friendly Mortgage Securitization project.
With today's snapback, the Dow lost 777 and regained 485.
As of this evening, Intrade says the probability of a bailout bill passing by Oct 31st is 85%.
(777-485)/(1-.85) = 1,946. So a bailout bill makes an expected difference of 2000 points on the Dow.
Of course this is a bogus calculation, but it's an interesting one. Not overwhelmingly on-topic for OB, but it involves prediction markets and I didn't see anyone else pointing it out. I hope the bailout fails decisively, so this calculation can be tested.
PS: Bryan Caplan understands Bayes's Rule: It's not possible for both A and ~A to be evidence in favor of B. So which of the two possibilities, "unemployment stays under 8% following a bailout" and "unemployment goes over 8% following a bailout", is evidence for the proposition "the bailout was necessary to prevent economic catastrophe", and which is evidence against? Take your stand now; afterward is too late for us to trust your reasoning.